Coal ministry warns power companies of short-term market sales

MUMBAI: The coal ministry has threatened to cancel allocation of coal blocks of power companies that are selling power in the short-term market at lucrative rates. The ministry has also asked them to enter into power purchase agreements (PPAs) on the basis of competitive bidding. The ministry has been charged with handing over coal blocks worth . 10.7 lakh crore to various companies, according to a draft CAG report.

Coal minister Sriprakash Jaiswal has defended the allocation saying that if the blocks had been auctioned, the consumers would have paid a heavy price for power and steel. The coal ministry's latest directive would specifically impact independent power producers and companies with captive units and is aimed at giving benefits to consumers through lower tariffs.

Industry officials say companies producing power from captive coal blocks include Jindal Power, although a company spokesman said the company had not received the directive from the coal ministry. Tata Steel also produces power from a captive mine, but industry officials said the company does not sell it in the open market. The coal ministry wants to ensure that companies sell power on the basis of competitive bidding.

It plans to make this a condition for coalmines already allocated, sources said. Ministry officials say the government had allocated large number of coal blocks to independent power producers and captive power producers, hoping the benefit of low cost of generation would be passed on to the consumers, officials said.

In an earlier communication seeking the coal ministry's advice, the power ministry noted that many coal block owners were not participating in competitive bids but selling power in the short-term market at higher prices, sources familiar with the development said.

In response to this, the coal ministry has directed power utilities to comply with norms of the power ministry and participate in competitive bids or face cancellation of allocation. "As coal blocks were given for power sector , the developers must participate in the bid for procurement of power by the distribution companies as per bidding guidelines issued by ministry of power and offer the benefit of the government allotted coal blocks to the consumers," the letter cited ministry of power's concerns.

Ashok Khurana, director general of the Association of Power Producers that represents 24 companies in the sector, said that the government may be justified in asking merchant power producers with captive mines to sign long term PPAs but highlights that the transition would be difficult. "Not too many states have been inviting bids for buying power so where would the power producers go.

We need to give them time to sign long term agreements , and this cannot be implemented immediately," he said. According to the ministry of power's tariff policy, all state power distribution companies are required to enter into PPAs through tariff-based competitive bidding. This ensures discoms buy power at the best available rate and consumers get low tariffs.